Almost everyone in the United States has a smartphone at this stage, and that’s seriously cutting into Apple Inc. (NASDAQ:AAPL) profits. The company would like for its users to upgrade their devices ore frequently, but that’s not the easiest task. A two year upgrade cycle already has the company taking more than $300 per year from each user, more than that is a big ask.
Subsidies are what drive iPhone sales. The hysteria about the possibility of US carriers ending subsidies on the iPhone appear to be over, and the wireless businesses appear to be offering easier upgrades for their customers. That could lead to higher sales of the iPhone, and that is an incremental positive for Apple Inc. (NASDAQ:AAPL).
More upgrades means higher revenue
Verizon Communications Inc. (NYSE:VZ) and AT&T Inc (NYSE:T) are both launching programs to compete with the T-Mobile JUMP program. The programs, which are titled Verizon Edge and AT&T Next, will see consumers pay the full price for their next phone on their bill rather than paying for it in an up front fee and subsequent billing.
Both programs will reduce the upgrade cycle to 12-18 months, significantly reducing the time that people wait to upgrade their smartphone. Those who opt into the contract, which will be more expensive than a base contract, will wait less time to buy their next iPhone. According to analysts from BMO Capital Markets, the move should reduce the overall net upgrade cycle to 21-23 months in 2015, down from the 24 months it occupies currently.
The analysts are also confident that the program will increase adoption to the iPhone 6, particularly given the expected jump in screen size set to come in the company’s next smart phone. A shortening of upgrade cycles is certainly an incremental positive for Apple Inc. (NASDAQ:AAPL), but it may be difficult to see in the company’s results. More important factors are at play in the company’s finances and the impact of a shorter cycle is likely to be lost in that fugue.
Apple fights for more of a growing pile
Apple Inc. (NASDAQ:AAPL) is looking to take on more and more of the money that people put towards consumer electronics while convincing people to allocate more money to that area. The company’s plan has resulted in incredible success so far, with its ability to sell a $650 120 million times a year a clear piece of support. That success has been based on subtler ways of paying that $650.
The new upgrade contracts from Verizon and AT&T are likely to continue this trend, but there’s only so far they can go. Apple Inc. (NASDAQ:AAPL) is continuing to operate in the consumer electronics area, and that means that each additional product marginally steals sales from the others. Unless Apple can convince consumers to continue massively expanding the money they spend in the area, no amount of stealth payments will save it.